Obamacare: Friend of the Entrepreneur and Early Retiree

The one we ended up with was called the “Saver80″, a barebones but useful plan provided by Golden Rule, which is a subsidiary of the very large United Healthcare. We found it through the insurance search engine called ehealthinsurance.com, using its “sort by price” feature.

At the time of the article I received many speculation-based complaints that are now worth addressing:

Complaint: “Those Ehealthinsurance quotes are all fake window dressing – once you sign up, the real premium is much higher”.Diagnosis: Mostly False. In our case, the original quote was $219 per month for our 3-person family, and after “underwriting” they raised it to $237 after noting the costly birth of our son (since if we chose to have more kids, they would statistically incur higher costs). Not too bad. And after the Affordable Care Act is fully activated in January 2014, past medical history will no longer be a factor.

Complaint: “They always jack your premium way up after the first year”Diagnosis: False. We just got the renewal notice for the plan. I was frightened to open it, expecting a doubling of premiums. And indeed it was a premium increase notice. Our costs are rising $4.24 per month, or 1.8%. One penny of this is the “standard increase” and the other $4.23 is the “age increase”, as Mrs. MM and I are a year older and, sigh, closer to our eventual death. If we account for inflation at 3%, the premium has actually gone down.

Complaint: “High deductible insurance is risky – you’re better off with full coverage”Diagnosis: False in most cases. Although there is plenty of statistical variation involved, on average you win when you self-insure. For example, as usual this year I went to the doctor once for an annual checkup and it was covered by the plan under preventative maintenance. Now pushing 40, I feel better than ever, and I like to say that bikes, barbells and salads are my primary health plan. Mrs. and little MM each caught two bacterial infections over the course of the year that required antibiotics, and we had to pay for the doctor visits and prescriptions out of our own pockets. This raised family health care costs for the year to about $600 (plus the $2844 in insurance premiums, of course). The high-deductible plan was still the clear winner even in this unusually bad year.

Complaint: “Your plan will not be available after the Affordable Care Act comes in”Diagnosis: True and False. Existing plans purchased in 2013 or earlier will often be allowed to remain in effect until at least the end of 2014, and checking ehealthinsurance, I can see my plan is still available today, for the same price. It will probably disappear at the end of the year.

According to my correspondent Xiao Sun who is part of a small business insurance firm called simplyinsured.com, high deductible plans are not going away, just being thinned out due to stricter rules. Xiao’s summary:

Some older plans are grandfathered in, so they don’t have to change. The main rule that high deductible plans have trouble with is the 80/20 rule, which requires at least 80% of premiums to be spend on medical expenses rather than SG&A and marketing. Plans that don’t spend 80% of premiums on medical expenses are supposed to provide rebates back, though many insurers are responding by not offering the high deductible plans anymore. More on that situation on this Kaiser Health News article.

OK, What about the Affordable Care Act (aka Obamacare)?

Although some misguided souls continually spread fear and doubt over it, this new law actually has some great potential. Remember, we’re starting from one of the worst healthcare cost situations in the rich world (Canadians pay about half of what we spend per capita for full universal coverage for life – including vision). So by moving the US closer to these more successful systems, we all have a good chance at saving money over time.

For an early retiree like myself, the option for a $10,000 deductible fades away after 2014. The new limit seems to be $5,000, which seems silly to a Mustachian (after all, who couldn’t rustle up $10k in a rare medical emergency!?), but necessary in a country where most people don’t even have a grand. Running through ehealthinsurance.com again for a 2014-compliant plan, I see this as my best option:

$460 per month, with a $5000 individual deductible, $10,000 family, and $12,700 annual out-of-pocket maximum.
This is for the “Kaiser Permanente Colorado Bronze” plan. Colorado residents can also do the same search on the state-run connectforhealthco.com (where the same plan is listed) and any US resident can search on healthcare.gov* (which just lead me back to the Colorado exchange).

Update: As of January 2015, more competitive providers have entered the Colorado market and I can now get a better-looking plan from Colorado HealthOP which includes children’s dental coverage for $408/month.

So we would be increasing our premiums, but cutting the deductible in half, as well as gaining prescription drug coverage (a $20 copay after deductible) and some other goodies. And the new plan is HSA-eligible, which means all costs will be covered with pre-tax money. More insurance for more money – not my favorite bet to make, but also not completely devoid of value.

But now that I’ve got you braced for a costly-yet-manageable worst case scenario, I can reveal the good news: Most Mustachian-level early retirees will get virtually free health insurance under the new law.

When you select a 2014 plan, a little box pops up: “check if you are eligible for a subsidy on this plan”. Working through the options, here is what I see for my own family:

Whoa. So although I could pay a maximum of $5520 per year for this new and improved coverage, in reality I will only pay this much in years where my annual income is over $80,000. For incomes below that generous level, the federal subsidy kicks in and my net cost drops, until I get to the point of free health insurance somewhere around $26,000. With annual living expenses of about $25,000, we could in theory live this current lavish lifestyle and get fully subsidized health insurance simultaneously, if our ability to earn money somehow dried up someday**.

So far I’ve covered these changes from my own narrow perspective: a young high-income family with considerable savings and no health issues. But the Affordable Care Act is really designed to help people less fortunate than us – students and seniors, people with existing conditions, the unemployed and quite notably self-employed entrepreneurs. With this new law, you can now drop the decades-old tradition of great fear and dependence on your employer for health coverage. You can quit your job, switch to another one, or create your own, with no more worry about who will cover you, because cost is affordable and minimal at lower incomes.

This is big. If you’ve read this blog for long, you know how excited I get about small business, self-employment, and the General Starting of Some of your Own Good Shit. It provides variety, challenge, and an early escape from The Man. And if you could see my email inbox, you would see just how many creative people are afraid to go out and do exactly that – over the mundane issue of health insurance fear. So I am going to place my bet that the Affordable Care Act will be VERY good for entrepreneurship in the years to come.

And just to maintain this country’s libertarian principles, you still retain the choice of opting out of the whole program. The penalty for failing to sign up is fairly painless – $95 for lower-income single people and rising to about $900 for a family of three making $100,000. So despite all the talk of lost liberties, your range of choices with the new health insurance law are better than ever.

Further Reading: Ezra Klein is a rather brilliant Washington Post columnist who has been digging into this and other neat policy issues for years in a column called Wonkblog. Here’s a link to everything his team has recently written on healthcare.

*Wow, I notice that the healthcare.gov site is snappy and fast now. Despite widespread controversy in the news about the supposedly catastrophic launch of this new website. Again the Low Information Diet prevails: stay calm, tune out of 24-hour-news cycle talking heads controversy, check site again a few weeks after launch, get health insurance quotes quickly.

** Unfortunately, I have to admit that this year we will have a household income above $80,000 and thus would not be eligible for a subsidy. Higher-than-forecast investment and Lending Club returns, rental house, carpentry, and real estate income plus this blog have all contributed to this. Please don’t tell the Early Retirement Police. If this terrible condition persists into 2015 and we are kicked into a new plan, I guess we will have to settle for a slightly lower savings rate. What an oppressive country!

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This article is sure to stir the pot but our experience has been quite similar to yours. I think we will actually benefit from the new health care options as we age and move our income to less ‘earned income’. We will end up qualifying for some subsidies unless we keep earning more in retirement than we expect (which wouldn’t be too bad). The best part for us is Independence from our employer’s plans even though they are pretty good. Our currently employee plan is about $1400 a month unsubsidized and the new plans available will be about $750 a month unsubsidized for the same coverage. We will elect lower coverage and should put us down in the $200 range with partial subsidy. I imagine early retirees should actually benefit from most of the changes.

You are right, it will stir up controversy. Fortunately, MMM delivers facts to add to the conversation. Although I don’t agree it will be as rosy as the picture is painted, I do appreciate the use of actual figures without the political nonsense that is normally thrown into this conversation. It will not be as rosy as painted here but it will not be as gloomy as some have predicted.

GlennOctober 28, 2013, 12:14 pm

Launch the complaiypants, know-it-all comments in 5, 4, 3, 2, 1, now!

RoryOctober 28, 2013, 12:19 pm

I’d be interested to hear your opinion of early retirees who live relatively mustachian – say $40k or less per year – and thus qualify for the subsidies. If you have over $1,000,000 in the bank [$1,000,000 *.04 = $40k] do you feel it is ethical to accept a farily generous taxpayer supported subsidy to help you buy health insurance?

This is something I wrestle with. Though I’m not ready to retire ( I don’t have my million saved yet), I am ready to have my wife home with the kids. We can easily survive and even save money on my modest salary (around $40k). However, we lived on welfare in our earlier years, and we aren’t excited to go back on social assistance if we can help it.

Good question! I would have similar misgivings about using government assistance in your situation. I’ve often thought about similar programs that rely on income to determine need, for example, the food stamp program.

They base your award solely on income- if you were financially independent and living off dividends, technically you could have millions in the bank and still be eligible for food stamps.

When does saving money, even within the bounds of the law, cross into something that is immoral?

KatieOctober 28, 2013, 12:55 pm

I don’t know if it will be this way for the healthcare, but in my state you will not qualify for food stamps and other aide if you have more than $2000.00 in savings, despite having a low income.

PawPrintOctober 28, 2013, 9:53 pm

Most states have asset tests for food stamps so even with a lower income, if you had tangible assets, you couldn’t qualify. The state I used to live in relaxed their asset test a bit during the recession. People who had lost their jobs yet had, say, a boat worth $4K wouldn’t qualify for food stamps normally. However, they couldn’t sell the boat during the recession so given a low income, they would qualify even with the asset.

LennStarOctober 28, 2013, 2:13 pm

I’m not in that categorie, so I make it short: I would not say it is ethical to get support if you can live off your dividends.
Simple solution: Donate to charities, preferable to those who work in the poorer countries.
Life-saving vaccinations can be unbelievable cheap – you can save lives for 3 Dollars a dose.
You could also lump together a sum with other mustachians to pay a doctor curing blindness with a simple 1-day operation that can be made at the villages (I have seen that on TV (duh) in Nepal)

Debbie MOctober 28, 2013, 3:19 pm

You can also send the extra to reduce the federal deficit.

ChrisOctober 29, 2013, 1:20 pm

NOT A SIMPLE SOLUTION! We are not taxed voluntarily. We are threatened with prison if we don’t pay our taxes. If you accept subsidies you don’t need, you are taking money from fellow citizens who have no say in the matter. And giving extra income obtained from subsidies to the poor or sick does not make it right, any more than a robber giving his loot to charity makes the robbery justified.

Rory: Good question. What about if you save the $1 million, live on under $40k, but take good care of your health and happen to be a net subsidizer of the insurance pool, because your premiums go mostly unspent?

In general, I look to the countries with universal health care (i.e., everyone except the US). No system is perfect, but the data shows they are more efficient than us, so it makes sense to set aside a bit of ideology and emulate them.

I think it’s critical for any critic of the expensive US healthcare system to at least understand why it has grown so expensive compared to the early 1900s. And the technology improvements don’t matter, that’s a consistency in every era. A brand new b&w TV back then cost more than a 1080p 60″ LED LCD TV today.

You’re such an influential person in the field of DIY and lowering costs, it’s a shame to see that you appear to be unaware of the historical reasons for why (such as govt’s intrusion in forcing companies to offer job perks such as healthcare during the wage controlled period).

I guarantee you will be impressed by this man’s level of knowledge. You’re a wise person and it’s worth seeing the other side.

I think those systems are more efficient largely because their cultures are very different. In Europe they have more respect for the opinions of authorities figures and think of themselves more as a member of a group rather than an individual.

So in Europe, doctors say that treatment X is not cost effective for condition Y. Europeans say, “OK, I don’t need it”. Americans say “I don’t care what you say. My cousin’s neighbor had treatment X and all is well. I must have the best!”

Richard Deyo, MD, MPH from the University of Washington wrote a book called “Hope or Hype” which your library may have which discusses some of these issues.

I agree Jason – and I think the thoughtful “listen carefully before speaking your own opinion” culture would do us some good around here too. We can all get a lot richer if we throw a bit more Science into the way we live our lives.

This is why I feel it is most efficient to try to change the culture first, rather than spending too much time fighting (or arguing over) the laws.

Wow, pretty interesting statement – that our bullshit over-medication is what makes health care so expensive. I’d personally be very happy to sign up for insurance that only covers the non-exotic treatments: stuff like penicillin, appendix and melanoma removal, stitches, broken bones etc. If the future of insurance does not agree with me, there might be a direct care practice in our future, we shall see.

On the other hand, since the ACA allegedly DOES work to reign in some of the industry traditions, we might see things go another way. Without emotion or whining, it is our job to study the progress and react accordingly.

tkOctober 29, 2013, 11:02 am

That’s the thing about the rules. If the government intended the subsidy to be based on wealth instead of income, they would have said so.

AnonymousOctober 28, 2013, 6:19 pm

To provide a contrasting point of view to what seems to be the prevailing political leaning here, while still supporting the same conclusion about the subsidies:

I strongly object to the ACA, both on principle, on constitutional grounds, and on financial grounds; I very much wish it didn’t exist. However, given that it does exist, and that I have to pay for it whether I use it or not (paying a fee to opting out is not an opt out), yes, of course I’ll take whatever subsidy I qualify for, as a very small refund of the extensive taxes I have paid, and I won’t lose a moment’s sleep over it.

It’s not even slightly hypocritical to say that you don’t think a government service should exist but take advantage of it since it does; to do otherwise is cutting off your nose to spite your face.

So, whether you’re in favor of the ACA or opposed to it, you shouldn’t feel at all guilty about taking any and all subsidies you qualify for. And either way, you can use MMM’s argument that if you’re healthy you’re paying more in than you get out, unless you’re the unlucky person who actually meets their deductible in a year.

This was my feeling too. It goes back to that Lawful vs. Chaotic good post from last week. Just because the rules allow you to do something doesn’t mean that is the right thing to do. To make that argument you have to break unjust rules both when breaking them is to your favor and when it is to your detriment. Taking a subsidy that is intended to help those who cannot afford insurance because your form of income is not visible to the government and/or is treated differently than earned income isn’t “good”. Maybe if you really only earn $40k on your investments and live on that, then sure, take a subsidy intended for people earning $40k. However, if you are really earning $120k from your investments, but are keeping 94k of that in unrealized capital gains so that your earned income appears to be $26k and then using that number to qualify for nearly free heathcare you are doing something wrong. That subsidy should be going to someone who actually needs the help. The same would apply if you were getting food stamps in this situation, or getting a “concierge” handicapped person to skip lines at Disney World. Those benefits are there to help someone who really has a need… and you don’t have that need.

VenturingOctober 28, 2013, 9:59 pm

The same argument could be applied to education: If you can afford to send your child to a private school are you obliged to do so rather than spending public school money on your child? I’m yet to come across someone who believes so, so why would this apply to health care?

You cannot control the policy, but you can control what to do with the money. Take the subsidy and feel free to use the money you saved to help the world in whatever way you choose.

George_PAOctober 29, 2013, 9:43 am

Rory brings up a good point.

MMM is wealthy and loaded, thus if he ditched the blog and carpentry side projects to lower the income to basic Mustachian levels (of just the investments alone, i.e. 25-35K a year) the MMM family would qualify for subsidize health coverage.

This really makes the case that the rules should be amended so that they don’t just look at yearly income alone but also take into account your total net worth before dishing out any subsidies.

JamesqfOctober 29, 2013, 12:27 pm

I’m on the other side of this question: FI but not planning to retire any time soon (if ever), and with (probably) too much income to qualify for any subsidies. So how do you think I feel about having to help pay for your subsidized insurance?

PedroOctober 29, 2013, 3:22 pm

The ACA bases subsidies on income & is blind to wealth. So because someone chooses to save much of their limited income for the purpose of providing future income with it, they should not receive a subsidy, but someone with the same income who blows it all on things they don’t need should? How is that ethical? The person who has put away enough money to fund their life off of the investments should NOT be penalized by having to pay a higher portion of their income towards health insurance because their income is generated from a pile of savings instead of some company.

Anyway, the percentage of income methodology is borrowed from other first-world countries (such at the UK, of which I have knowledge), and ties in better with the theory of keeping healthcare costs in check as a percentage of GDP – wealth has no affect on these figures, because this is money that has been removed from the economy.

EdOctober 29, 2013, 9:02 pm

I don’t believe many multi-millionaires forgo paying the lower tax on dividends while workers generally pay a higher percentage of tax on their salaries. I take the child credit, but that isn’t fair to others who don’t have kids. The bottom line is we all take advantage of the things we can to provide our families with the best quality of life possible. I don’t think anyone should have to apologize for that.

GeorgeOctober 28, 2013, 12:23 pm

ACA is ok until you get to the threshold of coverage at the bottom. For a couple, that’s about $22k income. Below that income and you’re either on Medicaid (for states that expanded) or back on your own dime.

If you’re retired and near the threshold, it could be difficult to predict which side of the threshold you should go for. Realize that there are clawbacks on both sides of the threshold if you guess wrong…

There is something I’ve always wondered about with a high deductible plan and it’s this: Insurance companies have a negotiated rate with health care providers that is usually substantially cheaper than someone paying cash. Before you meet your deductible, do you pay the insurance company rate or the cash rate?

Yes, Obamacare is an early retirement seekers dream. You could have $2,000,000 in the bank, but get heavily subsidized healthcare because your income is so low. Some may say that this is BS; if you have that much money in the bank, you should pay more. However, someone who has a lot of money in the can has probably paid a whole lot in taxes already.

Chris_WOctober 28, 2013, 12:55 pm

Mr. 1500 wrote: “Before you meet your deductible, do you pay the insurance company rate or the cash rate?”

My experience with my high deductible plan is that I file the claim with my insurer, even though I haven’t met the deductible, then the insurer sends me a statement saying how much the insurer would have paid for that service. Then the medical provider has always billed and accepted payment from me in the amount the insurer would have paid (the discounted rate).

Two problems I see affecting me with the new ACA system: One, if you move to a different state, you have to obtain a new health insurance plan.

Two, my current plan is supposed to be “grandfathered”, but my insurer is telling me they will extend the terms of my current plan (with a 7.2% premium increase) only until Nov. 30, 2014, but after that I will have to obtain a new health plan. 2014 plans are showing much higher deductibles ($6,300 vs. $2,500) for about another 10% more in monthly premiums.

JROctober 28, 2013, 2:22 pm

I received the same notice from my insurer. I believe that plans are only grandfathered until November 2014.

CALL 911October 29, 2013, 2:10 pm

Plans with customers prior to the date the legislation was signed (2010) are grandfathered and can continue indefinately, but only for those enrolled in that plan on the signing date. If a substantial change occurrs/occurred to the plan it is no longer grandfathered. Substantial changes include premium change, coverage change, deductible change or co-pay change. Most plans will wither and die as people leave the plan for whatever reason. At some point, they won’t be worth administering and the ins. companies will kill them.

ChrisOctober 29, 2013, 7:32 pm

Under the pre ACA system you had to buy a new plan if you moved to another state as well. Many a pre-65 retiree with medical conditions has found that they couldn’t move.

BeckyOctober 29, 2013, 10:05 pm

If you go to a ppo provider, you pay the negotiated amount. PPO providers have a contract with the insurance companies so when you go for an office visit, the doctor fee (example) is $175 but the contract amount is $75 so that is all you are responsible for on a deductible. If you have a copay of (example) $25 for office visits then all you pay is $25. Hope that helps.

NumbersOctober 28, 2013, 1:03 pm

The answer is that you pay the Insurance companies negotiated rate on the services and equipment. How do I know?

My little guy decided to not only come with a big bill for his early days but split his time in the NICU over two different calendar years so we got to pay max deductibles on a high deductible plan for two policy years in a row! Expensive way to do it, but he’s a fine little guy now and it really wasn’t that crazy expensive (I think our max out of pocket was ~$6K each year which came out of our pre-tax HSA).

RayOctober 28, 2013, 1:16 pm

I imagine it varies from plan to plan, but for my own high deductible HSA-linked insurance, healthcare providers covered by my plan have pre-negotiated rates with the insurance company, and that rate is what I pay.

TomOctober 28, 2013, 1:25 pm

I’ll fourth the notion that you get an insurance discount prior to hitting your deductible.

Humorously, when you do hit your deductible, your insurance company may ask you to prove that you don’t have other insurance prior to them paying any claims. This happened to my family when my wife was pregnant. Note: just a minor annoyance on my end, a simple phone call to say no resolved it, but I think its a delay tactic on the part of the Ins company, as the hospital had to resubmit the bill.

CincyCatOctober 29, 2013, 4:57 pm

It took our family over 6 months to deal with the “you must have other insurance” deductible game. Meanwhile, our doctor’s office – which we’ve always had a great relationship with for the past 10+ years – was forced to threaten us with collections actions for nonpayment. (And this was for a routine visit, which was supposed to be covered at 100%.) Good times…

Under a HDHP you pay the insurer’s ‘negotiated’ rate for all health care costs until you meet the annual Deductible.
In some cases, you will see a discount off the ‘Retail’ service price, in some cases there is no discount whatsoever.

In our particular case, some specialist services were discounted, while a runny-nose visit to our Family Practicioner cost us $200 (no discount for having insurance).

JackOctober 28, 2013, 1:39 pm

Dear Mr. 1500, physician offices and hospitals are contractually obligated to charge you the negotiated rates even before you have met your entire deductable. Most physician offices (if they want to continue to be in business) will calculate the amount that you owe and have you pay before you go back to be seen by the physician….if you have not experienced this at your physician’s office, I expect that you will soon.

Portability of insurance is a good thing as is guaranteed ability to access insurance for people. I am not as sanguine about the numbers adding up to “success” for the overall system (vast understatement) but I suppose time will tell. I do feel some interest in whether the subsidies (which is another way of saying that your neighbor pays for you) will contribute to a significant disincentive to work the extra shift, take that extra call at the hospital, etc. I will leave it to MMM to detail whether working less in this situation is a net good thing or not as he has much more clarity with these issues than I can ever hope to achieve.

I think that the question regarding assets and subsidies is a brilliant one. How can anyone honestly argue that it is fair for them to pay less due to their low income level in early retirement when their stash is vast and there are so many people that “need” the medical care? Perhaps I misunderstand the reason for subsidies and for some patients paying more for insurance (a premium) than they otherwise would have; by my understanding they will pay more in the healthcare pool so that others in need can have free or near free medical care. What is the difference between cash earned this year and that stack of cash that you have in the brokerage account? My fear is that the accounts that you may be relying on to finance early retirement will become an acceptable target for annexation to provide for those with a greater need, just as the yearly income has currently been targeted. In my mind, neither of these is a completely fair situation (taking from the assets of one person to pay for the benefits of another against their desires) but I can understand that I’m a bit of an outlier in my thinking here. Maybe it is reasonable to assume that my Big Mac should cost more so that Joe’s can cost less but I tend to feel that I’m just getting screwed.

I was very interested in MMM’s take on the doubling (or near doubling) of his insurance rates…sort of blase’ about it really…when we are talking about the same kind of cost increase that driving a Suburban (with the mandatory facepunch) instead of a more reasonable car would entail due to low mileage. Of note, the added benefit of lower deductable (5K instead of 10K) would have been of no benefit this last year for him as the family health costs, although totalling an unusually high $600, would have been nowhere near the lower deductable ($4400 below the value at which the deductable would have been met).

Whineypants? Perhaps. Concerned? You betcha. A little taken aback by the current perception of the situation by markedly intelligent people? Yes. Wondering about the status of my business and making plans to be financially secure when the bottom drops out of healthcare? Of course.

jbOctober 28, 2013, 4:20 pm

Re: MMM take on doubling of his insurance rates, it is actually potential doubling. Until his current plan ends he doesn’t know what it wil be. Also, lets consider our circle of contol… why would a face punch work since you can’t really do anything about it unless you choose no insurance.

JackOctober 29, 2013, 11:26 am

Dear JB,

Thanks for reading my post. I think you make good points in that the rates have not actually doubled at this point, just that they look like they probably will in a year. In response to this I would argue that it is Mustachian to plan for the future and be ready for potential points of increased costs, whether health insurance, groceries or fuel. Certainly a doubling of fuel cost (to $6.50 per gallon) would impact the driving habits of many around here…

In regard to the face punch comment…I wasn’t suggesting a face punch for the insurance but was using “facepunch” as description on the quantity of money that should catch someone’s attention (and in regard to driving a Suburban!). I would also say that I feel that the circle of control definitely does apply to this situation; as a consumer influence could be expended to modify the law/offerings so that better options exist. As a provider of medical care, there may come a time when not accepting insurance will be necessary for the survival of a medical practice. Both scenarios require a person to stay abreast of the current significant changes in healthcare.

CincyCatOctober 29, 2013, 5:01 pm

Not sure about the fuel cost analogy. Gas prices have more than doubled in the past 10 years, and I see just as many cars on the road (but then, I’m not a traffic analyst). And on top of that, is it really the intention of the ACA when people may not buy insurance at all if the cost of premiums is going to more than double for their household, over and above the cost of the tax penalty? Hospitals still cannot refuse service.

RoryOctober 28, 2013, 2:03 pm

“However, someone who has a lot of money in the can has probably paid a whole lot in taxes already.”

Maybe the well-off who make six-figure per year pay these high tax rates. But not middle class people like me! I assure you that I will pay decidedly little in taxes by the time I have my million saved for. All said, I’d estimate less than 5% on the entire amount saved.

When you take into account the fact that I avoided taxes at 15% when I contribute to my 401k accounts and I’ll only paying 10% on thier withdraw using SEPPs in my 40’s, it is conceivable that my total effective tax rate will be negative.

Not everyone can do this, understandably. MMM probably paid quite a bit of taxes on the first million he saved. Then again he earned roughly 4x more than I do in his last few years ‘on the job.’

LeahOctober 28, 2013, 3:08 pm

Hey Rory, what happened to welfare to well-off? I liked your blog and want to learn more about SEPPs…

MMM makes a pretty good point about taking care of your health and early retirees in his comment above.

I’ve met a lot of folks lately (thanks FinCon) who aspire to retire early and we are an exceptionally healthy set. I believe that it’s a product of the lifestyle. Folks that figure out that early retirement is a good idea have also figured out that taking care of their health is also a priority.

PawPrintOctober 28, 2013, 10:09 pm

Just a note that some people who have figured out that taking care of their health is a priority can end up with health issues that are not a result of lifestyle choices. Neurological disorders, such as the one that I have, often strike people at random and require health care expenses beyond the norm. My treatments cost $10K a year. In one year, my husband fell off his bike on a patch of black ice and broke his hip, was diagnosed and treated for breast cancer, and was then diagnosed with prostate cancer (treated the next year). We were ever so thankful for the low deductible employer-sponsored insurance that we had because the cost of that one year was well over $250K, and we paid $3500 plus the $220 per month premium.

I’m sorry to hear about your family’s health issues and I agree that certain diseases can come out of nowhere and zap us. Even children get cancer.

However, my money is on the people who take care of themselves. I’d always bet on the guy who eats a mostly plant based diet and exercises over the sedentary fellow who eats fast food 3x/week.

One can never get rid of all risk and that should never be the goal anyway. However, we can get rid of a lot of it with smart choices.

RoryOctober 28, 2013, 7:40 pm

Leah,

Thanks for the compliment. Unfortunately maintaining the blog was taking far too much time away from being a father and husband.

I decided to leave the blogging to the professionals such as MMM.

Alex in VirginiaOctober 29, 2013, 5:20 am

I actually had that happen to me many years ago.

The hospital billed me at the insurance company rate, then rebilled me at the much MUCH higher “walk-in” rate when my insurance company decided my hospital visit was not covered under the terms of my policy. Since the first words out of my mouth when arriving at the hospital were to the effect of verifying that I would be billed at the insurance rates, there was no way I was going to pay the hospital’s much higher rebill. And the hospital (plus the attending doctor, etc) were not going to accept payment at the insurance-company rate.

Fast forward 3 or 4 years, and — after collection efforts failed because the collection agencies would walk away from the account once given my explanation and offer of settlement — I had successfully settled with all except the hospital. Its final gambit was to refer my account to a collection ATTORNEY. Two phone conversations later with that attorney, and I had an accepted settlement at exactly the same payment as I had offered the hospital 4 years prior.

Except that the attorney kept half for his involvement. Stupid, stupid hospital.

Alex in Virginia

chrisOctober 29, 2013, 8:33 pm

The high rate for the unlucky SOB that get’s sick without insurance and get’s taken to the wood shed and sent to debtors prison is real. See above, who without supreme effort and careful thinking when walking in the door (to bad for you if you were not so smart) and got to pay the full insurance rate –lucky him?

NYTimes had a great series (after Brill did full issue of Time Magazine on the wild “defense department” level costs for everything and pulled back the curtain on how the health care industry pillages the uninsured).

On a personal note: My sister’s son has heart ailment. He needs to get surgery. She is full-time employed for over year at one of the largest drug store chains in the country in their accounting department as a temp. Get’s no health insurance. Absent her State agreeing to expand health care under the Affordable Care Act to cover those not “poor” but not “rich”, there would be no way for her son to get his surgery. Real lives being impacted for the better, hugely so. Thank you President Obama and the Democrats that made it happen.

JayPOctober 28, 2013, 12:26 pm

Great analysis, this will definitely benefit anyone with a low income, regardless of the reason. My job was just relocated and I received our COBRA option to continue coverage. For a family of 4(2 46 year old healthy adults, two healthy kids age 7 and 8), our insurance bill was $1979 per month!!! And that has a $600 deductible per person and $1500 per family.

Now, with me unemployed and my wife a teacher, $2K a month for insurance we rarely use is not a great option.

With our PROJECTED income for 2014, I think we will be eligible for the subsidy.

Now, its true that all these subsidies and expenses will be transferred to those with traditional insurance – someone has to pay the bill. But, for us I think it will definitely be the best option. And the best part, it really allows me to think about my true employment options now – rather than going back into a stressful job I never really liked anyway.

Unfortunately, when this becomes apparent, I think this whole system will crash as it becomes apparent that getting subsidies and getting on this program is far superior to paying full traditional rates under employers. I have seen medical insurance and costs go from manageable to just plain impractical during just the past 10 years. We stay away from the doctor whenever possible, even though I need some basic things – like a regular colonoscopy. I’d hate to think about the costs of being hospitalized, ER, or having a major illness on us right now.

noreenOctober 28, 2013, 7:30 pm

As I understand the ACA law, you cannot qualify for a government subsidy if you are offered the option of insurance through your insurer.

JayPOctober 29, 2013, 8:30 am

Actually if its offered through your employer but puts an undue burden on you relative to your income, you qualify for the subsidy. Being that my wife makes $33K as a private school teacher and my income is relatively small(dividends and unemployment), we would qualify as the insurance would be almost as much as my wife’s entire takehome pay. The school provides it – but almost all the cost is paid by the employee.

If it doesnt work out like that – you’ll have total chaos. For example, someone working at a retail chain that offers expensive insurance and the employee makes $30,000 a year might have to buy it with no subsidy while a similar employee from a chain across the street gets $1,000 per month subsidy because their employer doesnt offer it? You’ll have massive defections or employers cuttng out insurance so their employees can get subsides. You are going to see a “race to the bottom” on this.

While from Mustache POV smaller income and more flexibiliy are good – from a macro perspective maybe not so much. For example, if I can get a subsidy and cheap heathcare while making $50K but be elligible for nothing at $80K – I’ll work to keep my income just below the cutoff unless I can make a real jump – say over $100K. Therefore I will be costing the government money in subidies on one hand while also limiting revenues by producing less income.

They are also doubling the size of the Medicare pool, and right now those applications are running significantly higher than the exchanges.

We’ll see. But for us personally I hope to get a subsidy and get on one of the exchanges unless my employment picture changes.

TomOctober 29, 2013, 11:56 am

” For example, if I can get a subsidy and cheap heathcare while making $50K but be elligible for nothing at $80K – I’ll work to keep my income just below the cutoff unless I can make a real jump ”

But then I don’t think you’ve done your math fully…
At $47,100 (200% FPL), the maximum annual premium for a family of 4 is $4739.
At $80,000, the maximum annual premium is $7600.
So clearly, you would be letting the tail wag the dog should you turn down an extra $33k in income to save $2860 in healthcare costs (assuming you got this $80k job with no health benefits).

We should be aware of unintended consequences, but let’s think them through first.

JenniferOctober 29, 2013, 2:12 pm

Be careful with the math. You will only qualify for a subsidy if the premium for your wife only is more than 9.5% of her income. If it is less than 9.5% for her, but more than 9.5% to insure both of you, you will not qualify for a subsidy.

Thank you for being courageous enough to post about this! There have been so many speculations “when ObamaCare goes into play X, Y, and Z disasters are going to ensue!” It’s nice to see some real, hard numbers about how this could actually be a good thing for a lot of people.

Every other developed country has national healthcare, every other developed country pays less than us, and gets better services for the money they spend. Time for a change!

Also, it’s encouraging to know that with two “retired” people, healthcare is affordable, but it sure was a wake-up call for me for how expensive health care really is. Thankfully, Mr. GG loves his job, and they provide us with full medical, dental, and vision for only $40 a month.

Being in the crowd that aspires to be full time on my own business some day and having many friends in the same boat, the idea of accessible health insurance is the most interesting aspect. Do I have to pay double right now? Sure, fine, whatever. But I can get it, right? There wasn’t any guarantee of that before, especially if I had let coverage lapse in the past. I really really really hope that this allows for more innovation in companies we see created. I’ve seen this mentioned on a lot of SV type blogs as well: http://pandodaily.com/2013/03/20/obamacare-is-a-bonanza-for-startups-but-do-they-know-it/

Should be interesting to see if we have even more people jumping from the corporate ship in 2014 in the US to strike out on their own. I dunno, that water looks mighty fine to me…

Nice Analysis. I think for the financially responsible folks reading your blog that Obamacare will be of benefit. Those who are willing to pay insurance premiums without an employer subsidy can finally obtain coverage.

… but the Achilles Heel of Obamacare is the Mandate. In your case, why would anyone pay monthly premiums of $460 when the penalty for not having insurance is only a maximum of $900 (2 month’s premiums).

Young healthy folks with less than $1,000 in rainy-day savings will balk at paying monthly premiums when the penalty is only 2 months’ worth of premiums.

NickOctober 28, 2013, 1:35 pm

Well most people making 100k (needed to get the $900 penalty) have either health insurance or a larger rainy day fund.

People making much less (like 40k) get subsidies.

Seems like the only worry is people in the middle. Say family with 3 kids making 75k as a small business owner. I wonder how large the group of people who actively want to opt out really is.

But the 3-kid family at $75k would get a $3859 subsidy.. meaning the insurance would be very cheap.

The ACA helps people in the middle and lower ranges, while costing a bit more for high-income people (who don’t already have employer-paid coverage and who happen to be fond of $10,000 deductibles) like myself.

As for the mandate – I am curious about how many people will opt out. I’d guess it won’t all that many, as people are afraid of “penalties”. For example, I’ll still buy in if my premium doubles in 2015.

Sure, it’s more money, but it is better coverage, and I only have to pay it IF I continue to have the $50,000-or-more annual surplus. In which case, I probably don’t care much about an extra $2-3k, right?

cptacekOctober 28, 2013, 7:31 pm

There are ways to get out of paying the penalty. One is if you get a notice from a utility company that they are going to shut off that utility. Don’t pay one month, get the notice, pay immediately, and get out of the fine.

That’s what I don’t get. Only in the United state is not having insurance some sort of victory.

The penalty also starts increasing, up to a max of 2.5% of income I think. Even if you don’t quality for a subsidy, the coverage I’ve seen is pretty cheap.

I was quoted (21 male) a catastrophic plan for ~$150 per month with no subsidy. If I made 70K, I could pay $1,750 and have no coverage or $1,800 and have coverage.

cptacekOctober 29, 2013, 9:37 am

Some people can pay for their own medical care and don’t need insurance. Some of these same people don’t want to comply with a tax they feel is unconstitutional and want to take a stand. There are options for these people to not pay the tax.

Some people feel that it is none of the federal government’s business if they have health insurance. They are willing to take the risk in order to not comply.

Some people won’t get enrolled because of personal circumstances out of their control. They might want to skip the penalty also.

Many reasons to want to get out of a tax. And hey, it’s legal, so the consensus around here is that it is fine to do.

If some people can really pay for their own medical care, that’s great!

What I object to are people that don’t have insurance, run up huge medical bills, declare bankruptcy and then let everyone else to pick up the tab through higher insurance premiums and/or medical costs.

ampOctober 29, 2013, 7:43 pm

“What I object to are people that don’t have insurance, run up huge medical bills, declare bankruptcy and then let everyone else to pick up the tab through higher insurance premiums and/or medical costs.”

Instead, it will now be…

What I object to are people that have insurance, run up huge medical bills, don’t have to declare bankruptcy and then let everyone else to pick up the tab through higher insurance premiums and/or medical costs.

It’s different, not necessarily better than the pre-ACA environment. Insurance doesn’t lower actual medical costs. ACA spreads the cost of insurance to those with higher incomes and lower health risk (young) instead of just those with lower health risk.

If they had done something about the supply of medical care, like removing the AMA monopoly on medical school certifications (wonder why Americans were attending medical school in Grenada back in 1983???), then they’d be on to something. Instead, they’ve increased demand and done nothing for supply… and claim that will make medical care less expensive???

I don’t think the United States is “on to something” by clinging to employer subsidized for profit insurance. Other countries have figured this out. And they spend less money and their populations are healthier overall.

“The ACA helps people in the middle and lower ranges, while costing a bit more for high-income people (who don’t already have employer-paid coverage and who happen to be fond of $10,000 deductibles) like myself.”

Our experience with ACA is beginning and so far it’s not good at all. We DO have employer-paid coverage through my wife’s job and we just got our open enrollment paperwork. Guess what – the premiums are rising 30-40%, there are high deductibles on top of that (4-6K per year that we never had to pay before), paying 20% for doctor visits instead of $20 per visit as before and other similar new “features”. Our first baby was born under the current plan and we had $0 out of pocket expenses aside from the regular premiums. Under the new plan it will cost us thousands of dollars to have another baby. We can afford it and we will be fine, but people need to understand that ACA can absolutely cost more even if you have excellent employer-paid coverage already. The paperwork we received specifically stated that the cost of health insurance in 2014 WILL be higher due to ACA changes.

AaronOctober 29, 2013, 11:47 am

Surprised this is just now hitting you. My employer has been lowering our benefit and increasing our expense slowly over the last few years due to ACA laws. I guess the upside is that it doesn’t seem to be a very drastic change this year, it’s just been medium size changes each year for the last couple years. We used to have what was considered “Cadillac” coverage. I remember when I first started there 5 years ago I was amazed at how good it was compared to my previous employer.

Funny, my previous employer had gone through insurance changes every year for 5 years since I started working for them. Then I got “stability” and had asked my new employer about their insurance and they hadn’t changed things in about a decade. Well, when I started the insurance adjustments have been going on basically after I was there for one full year, every year.

I’ve told everyone at work that I’m the cause for all the changes. :)

In the end though I think it’s good. I have a high deductible plan now. Employer put’s $1200 in each year I have it. Avoids the $100 per month charge for the other option, so I’m ahead $2400 each year I use it, minus my expenses. It’s been funny though, asking doctor’s what something will cost BEFORE they do it gets me a lot of confused looks. My wife needed an MRI and I used an app to try to find the best deal for our insurance. The doctor’s office couldn’t quite understand why we didn’t just want to go with the first place where they could make an appointment (it cost twice as much). But eventually they were willing to moving things around when I insisted. Though I’m still upset that they charged so much for an x-ray, when I could have gotten one for about 1/5th the cost elsewhere…

In my own insurance coverage, I have seen coverage go down and costs go up for the last 10 years.

Now with the ACA, my husband’s insurance (which was already better than mine), has gotten even better and cheaper, due the limit on how much “overhead” the insurance company can charge.

JamesqfOctober 29, 2013, 12:39 pm

There are other reasons for opting out besides money. Going by the descriptions in the media, you can’t even sign up for one of these plans without completely surrendering your personal privacy. That’s worth more than an few thousand a year to me.

CincyCatOctober 29, 2013, 5:11 pm

They have insurance as long as their employer provides it. The other side of the coin is why would an employer continue to provide such cushy coverage if it is cheaper for them to discontinue offering insurance & just pay the per-employee penalty?

PylortesOctober 28, 2013, 2:32 pm

The tax (The U.S. Supreme Court has specifically rules this “a tax” rather than a :penalty”) is going up (being phased in) over a period of 3 years. By the end of that 3 year period the penalty will be harsher- $695/per person (so a family of 3 would have a $2k penalty for not buying insurance) or 2.5% of your adjusted gross income whichever is MORE. So while the incentives are not very strong the first year or two, by year three they get a lot stronger.http://www.factcheck.org/2012/06/how-much-is-the-obamacare-tax/

please someone correct me if I’m wrong, but I thought there would be open enrollment periods during which anyone could apply for coverage, but in general most people won’t be able to apply for ACA plans that start the next day (or even the next month) outside of these open enrollment periods.
I thought that was supposed to prevent some of the gaming the system of waiting to apply for coverage until you get sick…

In general, I’m trying to look at this as our young selves (who will probably pay more than we take out) subsidizing our older selves (who are more likely to take out more than we pay in…)

noreenOctober 28, 2013, 7:37 pm

The open enrollment period this first year is a total of 6 months long. If you want your insurance to start on Jan 1st, 2014 you must sign up by Dec 15, 2013. There will be no fine (tax, whatever) imposed on you for 2014 if you have signed up for healthcare by March 31, 2014.

Subsequent years will have smaller enrollment periods. However, if you have a ‘qualifying event’ (change jobs, move across state lines, have a bay, get married, etc.), you can sign up for new insurance a that time to go into effect immediately.

Mrs. Pop, I believe you’re correct. You must enroll during the specified time period unless a qualifying life event occurs (losing employee coverage, having a child, etc).

So if you don’t enroll and then need your appendix taken out in May, you’re on the hook for that cost.

KDOctober 28, 2013, 1:30 pm

Thank you for this post. I have Crohn’s disease. It has been in remission for years but I still have to take extremely expensive medication to manage it. (Currently $2k/month without insurance, could go up to $10k/month if I required infusions.) I am a lawyer and I would not have been able to go to law school if I wasn’t married to someone who worked for a large employer and could insure me under a group plan. I was otherwise considered “uninsurable” and could not purchase private insurance or work for a small employer that offered a cafeteria plan (basically a stipend with which you buy your own insurance.) Post law school, I was offered a job at a large firm. Being the mustachian that I am, I desired to work for a smaller firm where I could manage my own life and profits.

However, by so doing, I would lose the safety net of my large employer insurance. My husband works for the government and even though he hated his job, he agreed to stay there so I could stay insured and work for a small firm and make us more money. He now has another job he loves (though still with the Gov).

I am so thrilled that gone are the days that I have to pick my job (or when to get married!) based on my health insurance just because I was born with a medical condition that is expensive to control. I never understood it and thought it was utterly absurd. I would literally lay awake at night not worried about going broke if fired, but going broke if I lost my health insurance – or worse, dying because I couldn’t take my meds. If my husband divorced me, I would have to find a new job to get my meds. That makes NO sense.

In the past we could never dream of retiring early because on of us would always have to have big company insurance. Part of the reason my husband took the government job was for me to have health insurance in our retirement. He now isn’t married to the job for the next 20 years! It is so freeing.

DanOctober 29, 2013, 1:08 pm

I have Crohn’s too, and I feel locked into a job with a large employer for exactly the reasons you state. Hopefully this situation has now changed and I might get to make some choices as to how I spend my life!

CBOctober 28, 2013, 1:36 pm

I’m constantly surprised by how little of the discussion on health care focuses on how the USA’s current model of employers providing health care for their employees is detrimental to entrepreneurship, small business, and movement of the labour market in general. This is a BIG deal in a world where the middle class (traditionally supported by the spread of small business) is shrinking.

As an HR person, I don’t think that your employer should have ANYTHING to do with your healthcare choices – beyond providing you with the salary to pay for them yourself.

I’ve been a reader of the blog for a few months now. This is my first comment so I guess I should throw out a little background. The wife & I were both in the construction business. I used to run a one man plumbing operation then added building/remodeling houses, drifted into rental homes, semi-retired & now dabble in the antique/junk business. The wife specializes in painting interiors of high-end homes & works on a part time basis. Both of us are in our early 50’s & have been semi-retired for several years.

Our current low premium high deductible health care policy is being canceled due to the ACA regulations. I have researched our options & we are eligible for a subsidy based on current income. That means as long as we don’t increase our income our actual out of pocket costs to replace our coverage with a similar policy will be about the same. It also means the insurance company is getting a 137% increase in premiums for providing a virtually identical product. IMO there is something inherently wrong with that.

Yeah, but is your new deductible lower, or are there other changes that would be beneficial to the typical insurance customer? Everything I’ve learned so far shows that the new regulations are rules that force the insurers to provide more complete coverage.

So, while the extra coverage is not worth much more to ME personally (because I am so anti-insurance), I can see why it is more valuable and would cost more to provide overall.

But luckily, the only time I would ever have to pay out of my own pocket for the extra coverage, is in a position of ridiculous financial surplus. In this situation, it is logical not to spend much time worrying about the perceived injustice and instead invest my time into celebrating how great we have it.

Tim RetzlaffOctober 29, 2013, 4:23 am

I haven’t actually signed up for a plan but have narrowed it down to 2 choices. One has the same deductible, the other is much higher. Both have higher out of pocket maximums. To be fair there are some benefits added that my current policy doesn’t cover. None of those personally benefit me.

I can see the benefit of not worrying about the perceived injustice. However, that’s not my only problem with the system. As I stated I’m semi-retired. I don’t have a stash that is fully funded. I thought it was at one time but have found some of my assumptions were wrong. To compensate for that I take advantage of opportunities(primarily rehabs or flips, or buying a large estate for resale) that supplement my income solely to build my stash. I’m not talking about huge amounts of money…maybe an extra $10-20k every couple years. Under the ACA the subsequent loss of subsidy is an extra 20-30 cents out of every dollar earned. Combine that with taxes & the benefit of earning those extra dollars declines. I suppose the solution would be to go back fulltime for a couple years, but after being part time for almost 10 years I don’t know if that’s something I want to do.

You are correct. Insurers are now taking on unlimited risks. There are no limits on lifetime maximums, not limits on drugs, no limits on mental health, etc. That comes at a price.

If my client is going to have open heart surgery on 1/5/2014, I can write a policy for him on 1/1/14 to cover it. How many more people will need to pay into the system to cover the cost of my client’s surgery?

This is why the PCIP (Pre-existing Condition Insurance Plan) went bust. They planned for 375,000 people with health conditions to enroll. Congress funded it with $5 billion. A couple years later, with only 103,000 enrollees, the plan stopped taking on new people because of claims. Funding was supposed to last until the end of 2013, but they suspended enrollment in September 2012.

The Federal government will subsidize claims over a certain % until 2018. At that point, carriers will have to stand on their own book of business and try to remain profitable to survive. We will see.

GinoOctober 28, 2013, 1:39 pm

I am a single mustachian whose current income falls below the low end of the income threshold so I will not qualify for subsidies. My state did not expand Medicaid and I have assets so I won’t qualify there either. My current insurance didn’t make the ACA cut and is being phased out at the end of this year. It was a high deductible plan with a $3050 yearly deductible and $162 per month premium. My current plan offered to put me in their gold hsa plan for $522 per month with a $1500 deductible. No, thanks! I have found a replacement plan similar to MMM’s through ehealthinsurance.com. Although the deductible is $10,000, I was told it does not qualify as a “high deductible” plan. The monthly premium is $118 as long as I start it before the end of the year. I’m giving my current plan the heave ho after November and sailing into the new year with this other plan until things settle a bit and I can scout out something better. I much prefer not having to make a change at this point but no one asked my preferences. I could do without insurance and likely never have to pay the penalty but I believe in having insurance to protect assets. I am hoping to see many cash only healthcare options springing up such as Trinity XpressMed Walk in clinic of Texas.

Debbie MOctober 28, 2013, 5:59 pm

Same here. Have you tried narrowing your search to HSA plans and nothing good came up?

PaulOctober 28, 2013, 1:47 pm

“Remember, we’re starting from one of the worst healthcare cost situations in the rich world (Canadians pay about half of what we spend per capita for full universal coverage for life – including vision). So by moving the US closer to these more successful systems, we all have a good chance at saving money over time.”

Perhaps we would also save money over time if instead of finding ways to afford the high cost of health care, we simply asked: “Why does health care cost so much in this country?”

So much of the discussion (in this post and in the media) focuses on premium costs, income limits, etc. but seems to miss the real issue. Everyone is scrambling to treat the symptoms while the root causes go unaddressed.

Maybe we don’t really need massive government programs and “better” ways to purchase insurance. Maybe we just need to stop allowing the policies and practices that make health care cost so much in the first place.

LeslieOctober 28, 2013, 2:01 pm

I hope that eventually we will be able to shop for health care and compare costs between hospitals so that competition will come into play. In France at the American hospital they post the costs for procedures at the front on a big sign. An MRI costs over 1000.00 in the U. S. but only 280.00 in France.

I fully agree! In my mind the problem is not WHO pays for insurance, it is how much we pay for the underlying procedures. If we had the “Wal-Mart” style efficiency that you would expect from clean capitalism, a heart transplant would be performed by friendly hovering robots and cost $399.99.

However, with my understanding of the Canadian, UK, and US systems, the ACA has some key changes beneath the headlines that move us towards lower costs in the long run (including less emergency room care, lower underwriting profits, and less haggling over every bill).

Procedures are expensive mostly because people who can afford to have a non-emergency operation also have health insurance, so hospitals try to recoup the cost of treating uninsured people through the insured. Also, this is skewed by procedures that have implants, the costs rise astronomically. An aortic graft for an aortic aneurysm is $20-40k from the manufacturer. A coronary artery stent is $1-2k. Implants for spine procedures can be $5-10k per vertebra.

In many hospitals, the surgery department, NICU, and hematology/oncology or cardiology are profitable. The rest are money sinks. If our hospital did not have a larger surgery service, it would have closed down long ago.

Another major factor which is the “third rail” of healthcare is discussing expectations for end of life. Unlike what I imagine many of us would want, many families insist on a “full court press”, even for the very elderly or terminally ill. With some education and clear explanation of likely outcomes, families often decide to choose a less invasive way of dealing with a family member’s death. It is a difficult conversation to have, and would be much better suited to a family physician well before the stakes were so stark. If we could educate people before-hand, it would ease a lot of suffering of the patient and expense for society.

dudeOctober 30, 2013, 6:52 am

Amen, Abe — saw a story on this once, and my recollection was the 85% of Medicare’s expenditures go to end of life care, i.e., propping up/testing/operating on the dying. It is a cottage industry for many doctors, and given the emotions involved, it’s a time of life (for both the dying and their kin) that is ripe with the potential for abuse. But it’s just an extension of our “youth-at-all-costs” culture and general non-acceptance of death in the West. That mindset has got to change.

SamOctober 29, 2013, 6:16 am

Abe has a good understanding of our healthcare system. There are other factors to consider than just per-capita costs. Quality is a concern. I think most would hope that we have access to some of the highest quality of care. Also quantity, as Abe puts it; forcing a “full court press” in situations where the prognosis is poor. Expecting the highest quality and quantity of care is what drives our healthcare costs up. Having a privatized vs. universal system will not affect the cost as much as it will the quality and quantity.

Mr. M, your Walmart approach is actually quite viable. It’s actually insurance that prevents more of that model from happening. How do I know this? Because I’VE MADE IT WORK in my small corner of healthcare. Can you make a system that provides quality care to the under-served at low cost while still making a profit? YES! and insurance is not the solution, but actually the problem. Here’s how it’s done, Walmart style:

1) Have business people make your business plan, not the Dr. We know how to treat patients, not how to make a P&L sheet.
2)Specialize. The more services you provide, the higher your overhead.
3) Don’t expect the “full court press” in every situation. Why should everyone get a $2000 reconstructive surgery to get them out of pain when a $200 procedure will do the same thing?
4) DON’T accept insurance. One of the biggest costs in healthcare is the A/R, and write-off associated with insurance.

By doing this, I can provide my healthcare services at less than 1/3 the traditional costs, treat my patients sooner, all the while having personal satisfaction of treating people who otherwise wouldn’t be treated, and be well compensated for it.

I say this because it is insurance, and the expectation that insurance should pay for all our treatment, that keeps this model from being more wide-spread and our per-capita costs high.

I am skeptical of the ACA only because my model succeeds because I DON’T take insurance. Well, I should get off my soap-box. Maybe I should start my own blog to rant and rave on.

scottOctober 29, 2013, 9:59 am

1) I do like the idea of a health care system that reduces frictions in the labor market. I had never really thought about that before.
2) Is it really possible to make any conclusions about whether a universal system is a better way to administer medical care using the wiki expenditure per capita data without controlling for factors such as: in the US (compared to say the UK) we tend to shoot each other more; we tend to be in more car wrecks; we tend to eat more McDonald’s cheese burgers; we tend walk/exercise less; etc?
I think it is helpful to separate medical care from health care in these discussions. Medical costs are going to be higher for less healthy populations regardless of the system used to administer medical care.

Carpe DimeOctober 29, 2013, 2:17 pm

I had to go a deep dive through my browser history to find this video…

Regarding finding ways to pay vs. lowering the cost of healthcare, this clip provides a very interesting analysis of the cost of healthcare in the US:

While I admire your thoroughness, I got different results in my own analysis. I recently became self employed earlier this year and decided to get a HDHP with a $5,000 deductible. I shopped around and found that Aetna would be $109 per month with dental included. Keep in mind, this is only for myself as my wife has her own coverage through her employer 100% paid for. I used the calculator referred to by Healthcare.gov launched I decided to see what they had to offer and the premium was about 40% more expensive for the “Silver” plan. I just say this to level the playing feel a little.

Fabio FernandesOctober 28, 2013, 1:54 pm

Hi MMM,
I have became a huge fan since I discovered this website and set to do a lot of changes in my life since then: 2nd car is sold and I now commute by scooter (biking is a set target!), among many other changes!
So, first of all THANK YOU!!!

Now to this post. As a Portuguese going through the consequences of an overindebted state, I see the massive impact that universal healthcare has on costs and taxes, for a mediocre return at best. For example, the cost per person of the NHS in the UK is over 20.000£ per year (source: ukpublicspending.co.uk) which is just absurd.

The US system does have some serious root problems driving up the price of healthcare to insane levels. However, I hear/see nothing in the US about discussing which are the root causes (asking “why?” a lot of times until getting to the root) and addressing them. For all experience of Governements throughout history in “fixing” things, the odds are clearly not in favor of the “Affordable Care Act”, even though its intentions are surely the best.

As a fellow engineer with a sharp sense for finding rational solutions, I was hoping “libertarianism” resonated much more with you, as it did with me when I found it. Would love to read your thoughts.

PS: DId my best not to be a COMPLAINYPANTS! :D

JN2October 28, 2013, 3:19 pm

Hi Fabio, I think you’re out by a factor of 10. Try £2k per person not £20k. Not even the outrageous USA is £20k ($32k) per person!

I hate insurance companies. It’s complicated and there is so much behind the curtain that no consumer can easily get their hands on. For example, and in connection with Mr. 1500’s comment above, I need a specialized MRI performed every one (now two) years.

I’ve learned to ask what the negotiated rate is from the service provider. When I asked the last time, it had tripled because the Dr. had become associated with UCI thus the negotiated rate was different. Had I not asked, they wouldn’t have told me until AFTER the service and the bill was due.

I then tried to find another place to have the MRI done but the insurance co wouldn’t give me the negotiated rate for the places I was interested in until I provided the provider’s Tax ID, zip code and all the related billing codes. After weeks of dead ends, I finally did get the information and chose a cheaper provider.

How can the same procedure be so different in price simply because one dr. negotiates a better rate? Now I call that predatory because the consumer doesn’t even realize there are choices. This is the problem that needs to be fixed. Transparency in billing would make it a lot easier to choose where you would go to get service.

Sorry for the rant!

AjaOctober 29, 2013, 8:33 am

Based on my understanding of the situation, this is a key point, and this type of negotiating is exactly why healthcare costs are so high per capita in the US.

Think about it from the provider’s perspective for a moment. You are a provider. You spend a lot of time negotiating different rates with different insurance companies. For the sake of explanation, imagine you have one insurance company that sends you 10 patients per month, and another that sends you 1000. Do you want to negotiate more 10 patient deals, or more 1000 patient deals? Obviously, you’d rather make one 1000-patient deal than 100 10-patient deals, because that’s more efficient. As a result, you’re willing to drop your per-patient rate because you still come out ahead with the bigger client. Now, imagine you could get a deal with an “insurance company” that’s an ENTIRE COUNTRY. You bet you’d drop your prices to lock in that deal.

A country has a heck of a lot more bargaining power than any individual insurance company. Since demand for health care is rather inelastic (won’t change that much based on price), a system where insurance companies compete with each other forces/allows providers to up their prices and is more inefficient and expensive for everyone.

In turn, individual hospitals/providers don’t have the same kind of bargaining power as an entire country when it comes to medical supplies, equipment, etc. So again, lots of little negotiators can’t buy gloves or beds or x-ray machines at anywhere near the discounted price a country can when negotiating for all of them at once. Therefore they have to charge more, and we pay more in the end.

Nick COctober 29, 2013, 9:50 am

I see this idea thrown about a lot in support of single payer, but a price-setting system isn’t exclusive to single payer. I realize that Medicare is a quasi-single-payer system, but my understanding is that Medicare has a set price it’s willing to pay for a procedure for a given area. Perhaps allow a 10% increase above those rates for private insurers, and that’s the price. Period. Yeah, it’s a price control, but I’d rather have that than single payer.
On a related note, you can look up the current expense of a particular CPT number that Medicare allows, and use that as a negotiating point when setting up an appointment. I’ve been able to save thousands like this.

That is a great tip. I’ll try it with the codes for my MRI and see what comes up. Thanks!

JimOctober 29, 2013, 11:33 am

Having a high deductible plan and not being able to easily find out the cost of medical treatment until AFTER the procedure has been done is one of the most enraging and asinine things I have experienced in my life. One of the major reasons for implementing high deductible plans was to let people be smart consumers with their own money and have competition drive down prices. Insurance companies having confidential negotiated rates that take hours of time to figure out completely destroys this idea. If there was an exchange like expedia or kayak for doctors prices with different insurance discounts actually listed, medical spending would PLUMMET in the US.

2UnwindOctober 29, 2013, 9:05 pm

I’m about 100 articles into this most excellent MMM article (does he know how to hit a nerve or what?!) and this is the comment that gets me to post. Did you all hear what was just said by Jim here? Kayak.com for medical procedures based on CPT, zip, whatever. You could list the Medicare negotiated rate at the top and start listing the procedure and rate for providers in your zip location. OMG! Brilliant idea if we could just figure out how to feed in the services like major airlines and hotel companies do.

LennStarOctober 28, 2013, 2:41 pm

I’m always… impressed about the numbers that fly around on healthcare in the USA:
In Germany the costs are about 3000-3500 Dollar a year per person. Average expenses per person!

The money you pay is a % on your income for the “state insurance”. Less income, less pay. You pay a maximum of 2% of your income as deductible. What would be the price for that in the USA?
You can use private insurance (and if you are healthy pay less) if you have a high income or work as an entrepreneur, but I don’t have this in high regard. Basically the price is less because the insurance gets the money from you when you are young and healthy, let the money work, and then pay your costs when you are old and sick.

It works like a ponzi scheme combined with a bubble, and that bubble already shows signs of bursting because of the low % at todays money market. Premiums have already gone up 20% or more. Not much and it won’t be cheaper then the state insurance even for youngsters.

And Germany hasn’t even got a very efficient system, I think we are the only country in europa where the pharma firms can dictate the price freely and alone. Every other sountry makes some sort of round table and pays less.

AnnamalOctober 28, 2013, 3:16 pm

New Zealand doesn’t have a wonderfully efficient healthcare system but the two most positive aspects of it are Pharmac(the organisation that negotiates prices for commonly used prescription drugs) and ACC (legally here you can not sue another person for injury…instead ACC charges premiums to everyon and acts as a collective insurer in cases of accidental injury…it’s not always efficient but it keeps the court systems free, means that there is no such thing as malpractice insurance and leaves everyone willing to play risky weekend sport ).

Technically both things are anti-capitalist but in reality they mean that people are a lot more willing to start their own businesses and generally take entreprenurial risks because they are covered by a safety net in the worst case scenario.

GrantOctober 29, 2013, 3:31 am

New Zealand is incredibly sensible when it comes to accident compensation, and the benefit of this is evident in, for example, the awesome mountain bike trails! Land managers are not concerned about being sued by idiots (there is still a duty of care, but there is an expecation of being responsible for one’s self too!).

To bring this back to healthcare, this policy has a benefit in removing barriers to people being active and fit!

It’s lovely to see someone with an actual platform and readership make these points. I’ve bounced back and forth between freelance and working for The Man several times (where The Man is usually tiny organizations with fewer than 30 employees). Policy writers and media people have one big advantage over the rest of us – employer-sponsored health care from The Man.

Decoupling health insurance from having to work for an enormous, slow, boring company is huge, huge, huge. And underreported, because the people doing the reporting have no personal visibility into the problem, and how this law helps. It’s not a solution – more of a step in the right direction – but eventually we’ll get there.

Hi everyone! I’m Xiao from SimplyInsured.com (as mentioned in the article). Happy to answer any questions on anyone might have about small business coverage, health insurance in general!

– Xiao

J KennyOctober 29, 2013, 10:38 am

Well, I have a question for you Xiao. I did an e-surance lookabout to see what my family of 4 would pay for a high deductible plan (in California). Seemed like the quotes I got would exhaust my deductible first, then only pay, say, 80% of treatment/hospitalization etc. I understood that to mean that in a major medical catastrophe I would still be on the hook for 20% of medical expenses. Am I mistaken, or is that a typical way for a high deductible insurance plan to operate? Thanks for offering to share your expertise!

Speaking for my own experience, my company went under early this year and I was forced into self-employment to survive. Because health insurance is a must-have for me, I signed up for individual coverage with Kaiser immediately. As a 34 year old single male, my premium was $244 a month. I was recently informed that my 1/1/14 premium will be $277. While it’s a slight increase, I consider it money well spent on a number of levels, most of which have been covered in this article and in the numerous forum discussions on this topic. It’s also a slightly more comprehensive plan with a number of improvements that more than compensate for the slight increase.

Moreover, ending up self employed and scrabbling to build my consulting income, I’m finding that I can actually make *more* by keeping the work coming in and paying myself only the benefits I need (health insurance, being my own “employer” match in a Individual 401k up to 55K total a year!) and charging the customer more per hour. Where an employer might offer, say, $60 an hour to a full time employee, they are ecstatic to pay $75 an hour to me since there’s no overhead or benefits to pay! I make more, they spend less, and everyone is happy! So, in the end, I’ll happily take my self-employed insurance cost over an employer sponsored plan– it only hastens FIRE!

DebtDerpOctober 28, 2013, 3:23 pm

“Most Mustachian-level early retirees will get virtually free health insurance under the new law.”

Your analysis is spot on for early retirees but you leave out one major caveat! This “free” healthcare comes at the expense of the working stiffs and the young and healthy. As a current young and healthy working stiff I’m losing out on this deal but I might be changing my tune when I reach FIRE.

Exactly – just one more reason to enjoy a Mustachian lifestyle. Fewer years of work mean less taxes. Minimal shopping means virtually no sales taxes. Smaller house is lower property taxes. Low living expenses mean lower required income in retirement – still lower taxes. Subsidized healthcare means you are beating the system yet again.

You could therefore say that the tax system is really just imposing punishment on the Antimustachians!

And if you’re a poor fool like me who plans to someday make $1 million in a single year even after retirement, you will pay a lot of taxes – but with your pro-optimism and anti-complaint training, you will be choose to be happy about the AMAZING SURPLUS, rather than perpetually whiny about the “theft” of your hard-earned money.

TimOctober 28, 2013, 5:22 pm

I see it as a sort of “paying it forward”. I’ll gladly take the minor hit now when I can most absorb it for an easier time later.

GrantOctober 29, 2013, 3:34 am

My wife visualises paying tax as money going to a cause that she agrees with – so her taxes pay for a srtuggling uni student to be able to afford to live and complete their study, and from there they will go on to earn money and pay taxes!

ReepekgOctober 28, 2013, 3:36 pm

How am I the first person to be appalled that MMM’s health insurance constitutes 20% OF HIS TOTAL ANNUAL SPENDING! Hair on fire.

This is craziness, and I’m not sure I believe MMM’s positive outlook on it. Sure, ACA will help a lot of people and MMM pointed out who those people are, but he is not one of them.

Yeah, you hear that MMM? You don’t know how you feel about it. You can’t possibly like it because it doesn’t directly benefit you. We all know how you really feel and LALALALALALALALA! [fingers in ears]

It seems that most people who come to my blog to oppose various political ideas do it with the justification of, “It’s not good for ME, so I oppose it!!”

This is the position of weakness. Placing your votes to improve your own personal lot in life.

I have a better suggestion. Why not become sufficiently strong, that you no longer have to focus your efforts and complaints on your own problems?

Why not become invincible, so that no longer give a shit and can thus start spending your time where the REAL action is, which is helping to strengthen the people around you?

Complaints are for the weak. Figuring shit out based on actual data, making plans, and taking action, are what the adults work on.

As for the positive outlook: Starting in 2015, insurance premiums may be 20% of my spending! Oh no! .. But wait.. less than 4% of my income. Hey, sweet.

ReepekgOctober 28, 2013, 11:38 pm

Excuse me for my poor articulation:
1) Obviously, I doubt not MMM’s feelings of optimism and whether he likes it, but instead whether optimism is the correct initial response.
2) MMM, I didn’t realize we were having a political debate. Maybe a title more like, Obamacare: A Societal Good Worth Buying Into would have clued me in. Considering you outlined a way for people to pay nothing, once extolled the virtues of loving $10 again, and generally preach individual optimization (max efficiency min waste) in a capitalist society; it seemed pretty out of character to shrug and say ‘oh well, guess I’ll pay double for now.’

I actually support ACA and will be enjoying my $22.15/mo employer-provided coverage at a lower level not previously offered. Sorry to see you getting ripped off at $460/mo. But hey, maybe the adults will take some actions one of these days.

DanOctober 28, 2013, 3:51 pm

It’s important to note that while I don’t support Obamacare, I agree that it is potentially a great plan given the nature of its deficit supported subsidies. Since I am a CPA by background, I did think that potentially one could sign up for a high deductible plan, max out the HSA contribution at 6k, and such a move would greatly increase their subsidy eligibility. Since I have moved from retirement savings plan (401k and IRA) to an early retirement plan (taxable stocks), I can control my income more smoothly. One can also max out their traditional IRA’s in years they don’t have employer insurance in order to maximize their welfare, I mean healthcare, subsidies.

JonOctober 29, 2013, 10:05 am

It’s striking how many people — including CPAs apparently — forget or ignore that folks with employer provided insurance have been getting for many years “welfare, I mean healthcare, subsidies” to borrow your phrase. The cost of employer contributions are deductions for the employer and excluded from employees’ income. Moreover, employees’ premium contributions are likewise excluded from income. This tax treatment is the largest tax expenditure in the Code. http://taxfoundation.org/article/brief-history-tax-expenditures. I think the ACA brings some fairness to the system that heavily favored employer coverage.

As with employer-based insurance subsidies, in a few years perhaps people will no longer characterize affordable health insurance as welfare whether one gets taxpayer subsidies through an employer or an ACA exchange.

Also, speaking of employer-sponsored coverage not specific to Dan’s post, I hear about this outrage over the young subsidizing the old under the ACA. Well, where’s the outrage from young employees who pay the same premiums as their older co-workers at work? If it’s out there, I haven’t seen reports of it, and at least in my experience, I never witnessed it. (The ACA actually allows for some age-based premium differences so the young subsidizing the old is reduced in the ACA markets compared to employer-based markets.)

I find it reassuring that the things many may find so objectionable in the ACA are already in the system and all but forgotten or ignored.

cptacekOctober 29, 2013, 12:09 pm

The way to fix this inequality was to let people who wanted to buy their own insurance also take this deduction. Just that change right there would have enabled many people to sever their health insurance from their employer.

Wow. Just wow. I can’t believe how much health care costs in the US, and that these multi-thousand dollar plans are the cheapest, most basic option.

In BC, where we are one of the only provinces to have a monthly premium, we pay $60/mo per adult if you have an income over the poverty level. A run of anti-biotics might cost $30-50. That covers all basic and emergency care of all kinds–surgery, childbirth, cancer treatment, whatever. Most of us get better healthcare plans through our employers that make for better benefits–vision, dental, counseling, expensive drug coverage, private hospital rooms, etc,–but we don’t think twice about going to a doctor for basic care when we need it.

Holy sh*t.

DanOctober 29, 2013, 9:14 am

Before you get shocked by the US healthcare system, keep in mind our “care” is some of the best and on demand in the world. I had a very liberal friend of mine move to NZ for a year, his wife worked as an RN there, had a foot injury, and couldn’t stand the “care” she received and the filthy hospitals. She feels much more comfortable getting “care” over here. So yes, no care needed, this might seem like a good deal. He now says, “healthcare in NZ is free, but you get what you pay for.” Also, our taxes are considerably lower and our wages are considerably higher. We don’t pay a national sales tax and most state income taxes are around 5% on average, with 9 states not having an income tax AT ALL and five states that don’t have any sales tax. You can’t beat the cost of living in the US. It’s the lowest in the industrial world. Even adjusting for pop differences, demand to come INTO the US from Canada is much larger than Americans clamoring for free Canadian healthcare, which of course, isn’t free, or all that great.

MOctober 29, 2013, 6:29 pm

I just don’t buy the quality argument. I’m an American who moved to Canada 15 years ago. I never saw a big difference in the quality of healthcare once I got here. Yes, there can be wait times for non-emergencies but that’s because EVERYONE gets served. If you have a medical emergency you’re moved to the front of the queue, treated quickly and effectively.

ericOctober 28, 2013, 4:22 pm

I am self-employed 10 years, have had golden rule for 2 or 3, think same plan, but our renewal went up $50, 20-24% increase. it’s a pretty cheap plan, but does give deductible credit of $2000 for last 2 years, so we are at 6k rather than 10k.

This increase is about normal for individual insurance unfortunately, and our 3rd company, have to change every 3 years because increases don’t match marketplace plans that are similar.

Side note, better to get quotes from companies directly, as third party sites will take a monthly premium often, even seen this with aarp when i was helping my mother shop insurance. quite sad…

TommyVeeOctober 28, 2013, 4:41 pm

For most people in the US who already have employer-paid or government-paid (Medicare/Medicaid) insurance, ACA will not make a perceptible difference.

But for self-employed, financially independent people like myself, ACA makes a huge difference. Comparing iindividual market premiums before and after ACA is completely comparing apples and oranges.

Although my family has faithfully paid ~$9K per year for high deductible catastrophic insurance for years (high because we are post 50, pre-Medicare), we realize that the “catastrophic coverage” pre-ACA was really a mirage. If one of our family got seriously sick or injured (or just generally expensive), certainly the insurance companies would respond either by raising premiums to unpayable levels, or by finding some excuse to cancel coverage completely (usually they use “lied on application”, since it is impossible to correctly answer every question about family health history on many page applications){see the movie Sicko for a cancer patient terminated because of an unreported previous yeast infection}.

So the “no pre-existing conditions”,, “community-rated” ACA policy provides a level of financial protection that is in a completely different class and vastly superior to the previous “Caveat Emptor, we insure you only until you actually need insurance” policies.

Comparing the two policies dollar for dollar is comparing a Yugo and a Mercedes and only looking at the cost difference, completely ignoring the quality difference.

While we are keeping our current policy for the moment, we are actively shopping on the Colorado exchange, and very happy that ACA will remove a major source of financial risk for our family. Our current income puts us far past any subsidies, but we are happy to spend a little more money to make the US a healthier country.

WIth 40 million plus uninsured US citizens today, not even the wealthiest can escape the consequences of bad public health. Your restaurant server, house-cleaner, etc., with no insurance and resulting poor health care is much more likely to be sick and contagious, than the rest of the industrialized world, where health care is considered a human right rather than an opportunity for profit-taking.

Seems like it largely depends on your state. For example, I’m in Indiana. For a family of 5 that doesn’t qualify for subsidies, we are looking at an annual deductible of $12,700 (barf) along with premiums starting at $866/month for the bronze plan.

That is so ridiculous, I can’t even consider signing up for something that, even if we can technically afford it. No way am I having a big medical year and spending $20k+.

We joined a medical co-op instead.

Also, the private plan my husband and kids were on? That is going away effective Dec. 31, 2013 because it doesn’t meet ACA requirements. That plan had a $5,100 deductible and $230/mo premiums.

GlennOctober 28, 2013, 9:10 pm

Wow, $866 a month with the max deductible. I thought my state(TX) was high.

For a family of 4:

Pre-ACA:
$327/month
Deductable: 5K/10K
0% Coinsurance

Post-ACA:
$529/month
Deductable: 6K/12K
20% Coinsurance

I don’t qualify for any of the subsidies now, but it is nice to know that they may be there when I retire. Thanks MMM for the valuable information.

Jason ReynoldsOctober 28, 2013, 5:27 pm

Hmmmm…..something just does not seem right about a law that allows a family of 3 with close to $1 million in assets have insurance subsidized by a family of 4 with an income of $95,000/yr?

That’s how almost ALL the tax laws work. There is usually a huge loophole for people who save rather than spend most of their money, eliminating the need for high employment income. So the trick is to become one of them. This loophole exists both to encourage saving and investing, and because there are so few “extreme” savers out there, that we slip completely under the radar screen.

Ethically, you can still feel good about this: investing is very good for the economy and innovation, and consuming less is very good for the planet and all fellow humans.

First, I will say I am a licensed insurance broker who has studied this law since it was passed. It has a great impact on my career, so I have to be up to speed on it. I really like a lot of what MMM says here, I would like to clear up a couple common misunderstandings about the law and what I hear in the media. Being licensed in NC, I will say that plan details may be different in your state. Please talk with a licensed broker (check with your state’s department of insurance to verify the license) who represent many companies and is certified to assist you on the Marketplace (Exchange) to compare your options.

1 – The penalty mentioned is not accurate in most cases. It’s $95 per adult and $47.50 per child (up to a max of $285 per family) or 1%, whichever is greater. So if you make $9,500 per year and don’t get coverage, you would pay $95. However, if you make less than 100% of Federal Poverty Limit (which is $11,490 for individual), you will not be accessed a fine because the state didn’t expand Medicaid. So most people will be subject to the 1%. Make $30,000 a year, your fine is $300. You are accessed the penalty if you are uninsured for 3 months and the tax is applied when you file your 2014 tax returns. Still not a lot of money, but if you make that income and have a family of 4, you could get a heavily subsidized plan.

2 – Ehealth insurance may not show all plan available in your area. In NC, they do not show all carriers. It’s worth a call to find someone who writes most/all carriers. You could visit healthcare.gov and see who shows up when you run quotes in your state/county, then contact a broker to help you determine what plan is best for your situation. Just make sure you are viewing all your options. Some carriers will not work with “web brokers” like Ehealth.

3 – Be aware of rates on healthcare.gov’s “see plans now” button. If you choose a single person, it will ask if you are under 49 or over 50. If you are under 49, it shows rates for a 27 year old. If you select that you are over 50, you will see rates for a 50 year. Prices will be different if you are not that exact age. CBS did a story on this a couple nights ago.

4 – You can make too little income for a subsidy. If your state did not expand Medicaid, you could technically make 95% of the FPL and pay the same premium as someone who makes 405% of FPL.

5 – If you have access to group coverage through an employer or a wife’s employer, you will likely not qualify for a subsidy. If your group coverage is deemed “unaffordable”, you could have access the subsidy. To be “unaffordable,” the employee only portion of their coverage must be more than 9.5% of their gross income. It does not include the cost of spouse or children coverage. If the employee portion of the self only coverage is over 9.5%, you would get a subsidy. Since most employers pay most of the cost for the employee, very few I have talked with have “unaffordable” coverage.

Personally, I think it is interesting that the administration has said very little about using brokers. Brokers (should) know the ins and outs of the law and much about the carriers. As a broker, I see the value in what I bring to the table and how I can help clients avoid making costly mistakes. With the law, companies are required to offer the 10 essential health benefits, however networks can vary widely. If you were in my state, you may compare carriers and decide the cheapest plan looks best. What you would not realize is that the cheapest carrier would only offer in-network coverage in about half of NC. If you like to take a day trip to the beach, that carrier has no coverage on most of the coastal counties. If you travel outside of our state, their networks are not strong. If you were to ask a navigator any of this, they could not tell you because they know nothing about the carriers offering coverage. They have only been trained on the law itself.

Will this ACA benefit the MMM crowd, yes. If you are already retired and have a modest income, you will benefit nicely. It may hurt those who are working towards FI however. If you have group coverage, you may have to add your family to your plan instead of purchasing a separate lower cost plan. Either way, all this has to be paid by someone, so I suspect the fees and taxes will work their way through the system and into our pockets in the end.

I would not rely on the ACA call center or any navigator who has just finished their 30 hour course. Navigators know nothing about carrier plan details and can’t help you determine what best for you. My advice is do your research and use a broker. It costs you nothing and you get a second opinion for free.

Glad to help MMM. Keep it up…I am slowly making my way to FI also. Not sure I would RE because I like what I do now, but I will have options.
R

Debbie MOctober 29, 2013, 8:15 am

Thanks for the update.

I didn’t know #3. Crazy people. I just thought my state was being stupid and having only two tiers. I did get the right price (since I am 50), but that means that plans really are more expensive in my state. (My plan costs me $199/month; a new one that’s slightly worse would cost me about $250, but at age 27 it would be about $150.) At least my state has high-deductible plans, some of which are HSA-qualified.

I get to keep my old plan for another year (I have one of those companies that ended all their plans on December 1 so we could keep them longer into the new year). Of course they haven’t told me the new price yet, and if they raise it as much as last year ($23/month) after only 6 months, I won’t be pleased. Technically I’m even still the same age.

I didn’t really know #2 either, though I suspected as much.

SubversiveOctober 28, 2013, 6:21 pm

Just one correction re: Canada. Vision care is not included, except for children. Most people have coverage through extended health care plans from work, but it rarely covers the costs of glasses. If I remember correctly from the last time I had a salaried job, the coverage was $100 every two years. Obviously plans vary, but these are all above and beyond the “free” healthcare that everyone gets.

Carpe DimeOctober 28, 2013, 6:33 pm

I was just reading an alarmist article over on msnbc. Yes I read the post on the low information diet, and that’s why I jumped ship in the middle of the article hoping for a dose of reality and whoa! a post that couldn’t have been more timely!

Thanks for the breakdown. We’re about 18 months away from reaching our retirement goals and this was definitely a concern.

cwebbOctober 28, 2013, 8:09 pm

Hey MMM, hoping you can tell me if the following is true.

I have a friend in Ottawa who said that most people who can afford it purchase supplemental health insurance, which makes their total health care costs (including taxes) close to equal that of the U.S. system. Also, the level of care is considered to be worse (but that could just be chalked up to the grass being greener on the other side).

Any thoughts?

GerardOctober 29, 2013, 8:44 am

I can’t imagine how much you would want to have covered by supplemental private insurance in Canada in order to have it cost the same (per capita) as in the US. I’m paying $18 a paycheque ($468 a year), and my employer contributes $43 ($1118 a year), but that includes all kinds of stuff I wouldn’t bother to pay through insurance if I was buying it myself (e.g., travel insurance, teeth cleaning, no-deductible drugs, etc.). Canadian Mustachians with no employment-related insurance would almost certainly be better off self-insuring.

MattOctober 28, 2013, 8:57 pm

To be honest, this is one posting where I have to disagree with Mr MM somewhat. I don’t like the idea of getting free or heavily subsidized health insurance, just because I’m able to structure my take-home pay in order to become eligible. To me, this seems too close to gaming the system.
The thing that I like about the whole early retirement philosophy is that it shows the way to achieve independence though smart life choices and eliminating pointless consumption. And that sort of lifestyle is completely consistent with good citizenship. But living a comfortable lifestyle, with plenty of assets in the bank, while my fellow citizens to foot the bill for my healthcare, isn’t right, in my view.

RoryOctober 29, 2013, 8:12 am

I agree very much with this. Just because you can do something, or it is legal, doesn’t mean it is right.

Consider (some) lawyers, the investment advice industry, and professional lobbyists as among a few who prove this point.

JackOctober 29, 2013, 11:03 am

Matt,

I agree with your take on this…the thing I like best about this website is that personal choices, particularly with expenditures, make a huge difference in your future as well as in the way you live your life currently (eg biking, exercise, eating, etc). This article had a very different tone to my reading and I don’t truly understand why…almost as there is a desire to see the ACA be a good thing instead of a rational examination of what is taking place. Granted, there are good aspects of the ACA but the rate pain that will work its way down the insurance pools (may take a few years) is definitely not one of them.

1. As an aside, in the heavily subsidized plans, will there still be a 5K deductable? If so, what makes anyone think that patients will go to the doctor’s office instead of the ER for their care given that they will have to pay the deductable at the office? Will office visits not be subject to the deductable?

cptacekOctober 29, 2013, 12:01 pm

There is a desire by this author to paint the ACA in a positive light. It is my understanding that he is actually a proponent of single payer, and this legislation is a step towards that.

SomeYoungGuyOctober 28, 2013, 9:26 pm

Sorry, but where was the fact that it is still better to have an employer’s HI? That most interesting calculation, that, in the transitional phase, I am better off laying low but it may only last for a year… If you are FI, what would you do? eh? I can move, I can work very part time, and I can camp and farm and live like a multi-millionaire or a vagrant, what should I do?

PhysicianOctober 28, 2013, 11:07 pm

I cant believe all the posts are pro “Obamacare.”

As a physician the last thing I want is this.

Without going on about it, I believe this is the wrong maneuver to deal with the aging baby boomer population and I feel it is being done on the backs of young physicians.

I am 29 years old, almost 30 and financially very far back and not sure if being a physician is financially worth the extreme time commitment and stress involved. The only thing keeping me on this path is that I really want to help people. I think obamacare is wrong for patients, doctors, and bad financially for the country. I think it is designed to usher in single payer and will reduce the quality of medical treatments available.

JackOctober 29, 2013, 3:01 pm

Dear Physician,

I’m a fellow physician. My advice is to take a deep, deep breath and try to let the emotion slowly seep out of you. Most non-medical people simply do not understand the depth of emotions that most medical folks start to feel about issues dealing with entitlement, reimbursement cuts and threats (the yearly or even every 6 month SGR “Doc Fix” which, if enacted, would shut down every independent clinic in the country from seeing Medicare patients (projected 32% cut from revenue last I heard)), risks of being sued, and frustration from general antipathy that many evince toward the medical field. I, for one, wish we could do cardiac transplants with hovering Wal-Mart robots for $399. Sure would relieve a hell of a lot of cardiothoracic surgeons! I’m not sure, however, that the computer programmers (for the robots) would be too excited about the risk of lawsuits, responsibility for life and death situations, on-call duties, etc that they would then assume.

I think the best that we can do (as medical people) is to try to stay factual and nonemotional about what is going on, even as we feel that our very livelihood and ability to administer to patients is under existential threat. Frankly, most will not feel that this is the case (and will point to other countries as proof of this) and less will really care (until they are under the knives of the floating robots or equivalent). Really, if need be, we both should be able to work in other fields unrelated to medicine and make acceptable livings if necessary.

My advice is to attempt to save as much as possible of the money that is left following your student loan payments and try to get to FU money ASAP so that if things really go south you can take up a hobby and shake your head at the whole situation. I agree that we are certainly on the way to a single payer system (any statement to the contrary by politicians must be viewed cynically given prior statements they have made on medical insurance and the ability of people to keep their current plans).

I also feel that in the future there may be no option to “opt out” of accepting Medicare, Medicaid or ACA mandated insurance…doing so may void your ability to practice medicine if medical licenses become federally administered. Hopefully this situation is at least 15 years in the future. At worst, physician time will become a commodity and salaries will become completely controlled…much like the armed forces salaries sans the retirement benefits and with the continued threat of lawsuits. How’s New Zealand this time of year?

Oddly, when I plug in my numbers, the cheapest plan that I have available, in California, is a PPO plan for about $790. This may be a testament to higher costs in specific states vs ACA as a whole. It is still cheaper for me to use my employee sponsored plan.

Odd that HMO options were not given to me — I must be doing something wrong.

Wow! I can’t believe how obscenely expensive health care / insurance is in the USA. Here in Australia we have a pretty good public health care system. If you earn under $88k p/a as a single (or $176k as a family) you just pay the basic Medicare levy each financial year which is 1.5% of your total income. If you earn over $88k you have to pay an additional 1-1.5% levy surcharge depending on what income bracket you are in.

If you are in this higher bracket you can be excluded from paying the levy surcharge if you have basic private health care insurance. Basic private health insurance is around $550 per year and medium-level cover with a few benefits (dental, physio etc) for a single, young person is around $800-1000 per year.

As I am a young, fit and healthy person I elect not to have private health insurance and simply use the public system if there is an emergency and I have my own private emergency fund to pay for any treatment in the event it is required. E.g. dental is extremely expensive in Australia, last time I had an accident and damaged two teeth it cost me around $1200 cash to get fixed. We’re working on that though with the introduction of Denticare (thanks to the Australian Greens) which covers dental care for people on low income.

Even if I did pay for my private insurance and got a plan with the highest level of coverage, it would still only cost around $2000 per year with a $0 excess! Add the levy to that, which usually works out to be around $900-1000 for a person on a decent income and you’re sailing.

The crazy part is this Medicare levy business is new here. Before that it was all just covered from our general taxes, just like our schools and other community facilities. We don’t pay much tax either compared to other countries. For example I only paid 23% of my income in taxes last financial year.

JMOctober 29, 2013, 2:59 pm

You guys make up for it with the cost of living everywhere else: sales tax, income tax, real estate, food, petrol, etc. :)

TrulyStashin'October 29, 2013, 4:51 am

Here’s how Obamacare is impacting my financial life (politics aside):

Current cost for HMO care for me only — $87/ mo. or $1044/ yr. + copays varying from $30 to $50 with minimal Rx coverage (last Rx cost $115 because it was a “Schedule II” med).

My employer is dropping the HMO and offering two high deductible/ catastrophic plans with a HSA. We’re healthy, so I’m going with the higher choice AND adding my 22 year old daughter to the plan AND my 16 year old son.

New cost for HD plan for ALL 3 of US – $10/ mo or $120/ year. The deductible is $11k, with 100% coverage after that.

Employer is funding my HSA with $1000 each year. I will shift my former-HMO cost into the HSA, so I’ll put my $87/ mo into the HSA and invest it in index funds where it will grow in value. Any funds not used for medical care can be withdrawn for any use after age 65, just like a traditional IRA plus it reduces my taxable income for 2014. By 2015, I’ll be in a position to fully fund my HSA along with my 401k which will work in tandem to boost retirement savings and reduce taxable income.

Using MMM’s “173 Rule” (my $87/ mo + $83/ mo employer contribution) x 173 should result in an approximate value of $29k over the next 10 years. If I spend money on health care, I can withdraw it from my HSA if I want or not. So long as my monthly cash flow can handle periodic medical expenses, I plan to leave the HSA money alone.

Overall, this is a HUGE financial win for me and my family.

bilirubenOctober 29, 2013, 4:54 am

I have a question about business deductions and qualifying income.

As far as I can tell, the main income number they are using, MAGI, does not take into account business deductions.

This seems to be a fairly nasty penalty for the small business owner with high business expenses.

For example, my sister brings in around 100K a year, but 70K a year goes back into the business, and she only makes 30K after deductions.

But she doesn’t qualify for a subsidy because the MAGI is determined before itemized business deductions on page 2 of the 1040.

Is this correct, or am I missing something crucial?

She also lives out in the sticks, and her options seem to be far more limited than mine here in the big city, but same state. That’s also weird.

bilirubenOctober 29, 2013, 8:23 am

I just note, I have been for expanded healthcare coverage for decades, preferably single-payer, but I’ll take what I can get. This singular achievement has allowed me to look past some other transgressions of our moderately conservative president.

I am really just curious if I’m misreading the website, and it sounds like there are some very knowledgeable people here.

DanOctober 29, 2013, 10:29 am

You typically deduct business expenses on your Schedule C so you are reporting net business income (assuming you are a sole-proprietor – other forms for other structures, but the same principal generally applies).

So in your sister’s case, the schedule C should show 100K in revenue, 70k in expenses, and 30k in net profit. Only the 30K net shows up on the 1040 to be included in Income.

HamsterOctober 29, 2013, 11:49 am

I’m not a tax expert, but I thonk you may be hurting yourself by doing this the way you state.

Shouldn’t you be figuring your business profit/loss (including exenses) on schedule C? Then you apply the total profit/loss on line 12 of your 1040. That is before you determine MAGI. Again, not an expert, but maybe you should look into this a bit more carefully or hire someone (maybe not the most mustachians option?) to make sure you’re doing this right.

JamesqfOctober 29, 2013, 12:49 pm

Not a tax expert, but self-employed for many years. AFAIK you shouldn’t, as business owner, be deducting any itemized business expenses on page 2 of F1040. If you itemize deductions on Schedule A, you can deduct business expenses OF AN EMPLOYEE there, but as others have said, actual business income & expenses should be done on Schedule C and its subsidiary forms, then the net income reported on line 12 of F1040.

BilirubenOctober 29, 2013, 1:02 pm

Cool. That makes much more sense, and probably the way my sisters accountant is doing it. She just didn’t realize it
.

You guys rock.

Kruidig MeisjeOctober 29, 2013, 6:35 am

I agree with Carl.
Here in NL we have quite a discussion in the papers that basic insurance will rise from approx 95 euro’s a month to 98. in 2015. While going down this year (8%).
Consumers union think the premium should go down 30%.
The deductible to unfluence your premium is max 500/year, which might help15 euros a month.
The numbers I read here for premiums (500- 800 dollars range) is totally unknown here. And the fine print (copay, exclusions) we don’t have. Yet.
I keep up the reading, so to know what we might be heading for, but I am quite happy to live in a country with a decent healthcare system. Even if I pay in these years. This is quite affordable, and I wouldn’t like to think how life would be without affordable insurance or care. I count myself lucky to live here.

LukeOctober 29, 2013, 6:51 am

One question – is there a reduction in ACA subsidy based on assets? At least in MN there’s a medicaid subsidy decrease depending on what you have rather than the income you’re making off of it.

JenniferOctober 29, 2013, 9:48 am

No, the subsidy only considers income – no asset or means testing at all.

EricOctober 29, 2013, 7:22 am

It seems like the following could be a common problem for mustachians who are likely to have low and not entirely predictable income in any given year:

You project that your annual income will be slightly above the cut-off that would put you into Medicaid territory. You purchase a health plan on an exchange which, after factoring in the subsidiaries, costs little to nothing. December 31st comes around and, whoops, turns our your income for the year was a little less than you expected — just below the cut-off, putting you into Medicaid territory. Now you aren’t getting the subsidies you thought you qualified for, and the insurance you had all year will cost you tens of thousands of dollars (maybe close to your entire annual income!) when you file your tax return.

RMoreOctober 29, 2013, 11:25 am

“December 31st comes around and, whoops, turns our your income for the year was a little less than you expected — just below the cut-off, putting you into Medicaid territory. Now you aren’t getting the subsidies you thought you qualified for, and the insurance you had all year will cost you tens of thousands of dollars (maybe close to your entire annual income!) when you file your tax return.”

Huh, can somebody please verify if this is true? If I say I’ll make $25K and then I only make $0, what exactly will happen?

EricOctober 29, 2013, 12:20 pm

If you only make $0, you are ineligible for the subsidies (but you are eligible for Medicaid). I’m hoping that someone with more knowledge/expertise will chime in, but my understanding is that if you purchased health insurance on an exchange expecting to qualify for subsidies, but then turn out NOT to qualify (because your actual income for the year was too low, or too high), you do not get the subsidies and therefore pay the entire cost of the premiums. The settlement occurs when you file your taxes — if you paid little to no premiums because the subsidies were already factored in to your premium payments (i.e., the subsidies were “advanced” to you), then you will owe the difference to Uncle Sam when you pay your taxes. Here is a post from the forums about this (including discussion of how it will create incentives for people to falsely report “phantom” income, and strategies for legitimately increasing your reported income, such as by converting traditional IRA funds to Roth IRA):

If your income is low enough to qualify for Medicaid the maximum penalty you have to pay would be $300.

EricOctober 29, 2013, 2:33 pm

I wasn’t talking about a penalty, I was talking about having to return the subsidies that were “advanced” to you for which (in hindsight) you turned out to be ineligible. And anyway, I don’t think you are correct about the penalty, because if your income is low enough to qualify for Medicaid, you will not be assessed any penalty (because the penalty is for not purchasing insurance, and if you qualify for Medicaid, you don’t need to purchase insurance, because you qualify for Medicaid).

Bob LOctober 29, 2013, 8:03 am

Thanks for writing such a levelheaded article on a subject that is normally discussed with anger. I have to admit, though, that I’m a bit turned off by your enthusiasm for “free” (i.e., taxpayer-subsidized) insurance for early retirees. That money comes from your fellow Americans’ paychecks and is intended for those who truly need it; do keep in mind that this system (like any taxpayer-funded system) will not work if too many people take advantage of the subsidies.

RoryOctober 29, 2013, 8:05 am

MMM,

I wonder how much filtering of your comments you are doing for this post. Is it considerably more than the average post?

The reason I ask is that I’ve never seen the ACA discussed online before without taglines such as ‘socialism,’ ‘Hitler,’ ‘repugs’ and the like being thrown around. I haven’t even heard mention of the ‘death panels!’

Are your readers this enlightened? Or is it only maintaining civility due to your serious effort at throwing out all the B.S?

LeslieOctober 29, 2013, 9:20 am

I think people are figuring out that the death panel charge was bogus. It refers to an “advance directive” which most hospitals now require their patients to have on file. This is so you can control what happens to you if you are on life support and can’t speak for yourself–i.e. should they pull the plug or not. These were around long before the ACA was ever enacted.

cptacekOctober 29, 2013, 9:28 am

No, death panels refers to the IPAB, an unelected board that is supposed to determine how to save money on medicare. The fear is that their goal of saving money will come at the expense of quality medical care.

phredOctober 29, 2013, 2:58 pm

Many hospitals now use the care is futile model. Instead of doing all they can to save a patient, if they think an operation or treatment will be a waste of time, they won’t even bother getting out of bed. That one exception, who might have pulled through due to the operation, now dies.

While the healthcare in Canada is “universal”, it is far from good. Depending on the province you live in, there can be very lengthy wait times for diagnostic services, and it can be difficult to find a family doctor who is accepting new patients. I still believe a universal HC system is better in the long haul (i.e. for the greater good), but there remains a lot of work to be done in Canada.

RebelStacheOctober 29, 2013, 9:07 am

Imagine if you were the President. Would you only moderate out your political bias viewpoints? Or actually listen a little to the other side, even if it’s not what you want to hear, for a challenge to your logical understanding of the people. Conservative Financial independence people is half of your audience. Filtering them out, is not a great idea.

You are definitely right. I try not to filter out “conservative” viewpoints. (commenters cptacek and Anonymous might be representing this side and you can see plenty of comments from them around us).

What I do filter out is comments that are overtly angry or attacking, or simply parroting talking points on either side of the political divide rather than suggesting a more efficient way based on the best data we can find in our flawed world so far.

So if a “liberal” person says, “The rich are just shitting on the poor and opressing them”, or “In order for someone to be rich, someone else must be poor”, I delete it – both because it is unverifiable (and yet as wrong as an unverifiable statement can be) and in the interest of avoiding a pointless shitstorm.

If a “conservative” person shows up and says “Taxation is theft and not in our constitution”, or, “All government actions are by defintions violations of the will of the people, enforcing the will of one group upon another by threat of force”, that gets deleted too.

These are ideologies rather than scientific attempts to increase the wellbeing of humanity. And while they are perfectly valid viewpoints to express, they just have to go on your OWN blog, rather than here in my living room, because we have a different mission here.

These arguments about comment curation are all good shit.. I need to save them for an article on the topic.

On the topic of your oppressive tyrannical comment deletion frenzies, I find it interesting that the average Anon thinks they have some sort of right to post their content on your website. How dare you utilize your own, private, paid-for domain how you see fit? How dare you suggest that someone should not be allowed to enter your home and piss on your wall, let alone dare to say you have the authority to wash the pee away?
You’re just another Obamacare, sir. Inexplicably taking away my rights which you are totally not taking away!

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